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# General Motors Co. (GM)

## Present Value of Free Cash Flow to Equity (FCFE)

Difficulty: Intermediate

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company’s asset base.

### Intrinsic Stock Value (Valuation Summary)

General Motors Co., free cash flow to equity (FCFE) forecast

USD \$ in millions, except per share data

Year Value FCFEt or Terminal value (TVt) Calculation Present value at
01 FCFE0
1 FCFE1 = × (1 + )
2 FCFE2 = × (1 + )
3 FCFE3 = × (1 + )
4 FCFE4 = × (1 + )
5 FCFE5 = × (1 + )
5 Terminal value (TV5) = × (1 + ) ÷ ()
Intrinsic value of General Motors Co.’s common stock
Intrinsic value of General Motors Co.’s common stock (per share) \$
Current share price \$

Based on: 10-K (filing date: 2019-02-06).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

### Required Rate of Return (r)

 Assumptions Rate of return on LT Treasury Composite1 RF Expected rate of return on market portfolio2 E(RM) Systematic risk (β) of General Motors Co.’s common stock βGM Required rate of return on General Motors Co.’s common stock3 rGM

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

Calculations

3 rGM = RF + βGM [E(RM) – RF]
= + []
=

### FCFE Growth Rate (g)

#### FCFE growth rate (g) implied by PRAT model

General Motors Co., PRAT model

Average Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (USD \$ in millions)
Cash dividends paid on common stock
Net income (loss) attributable to stockholders
Automotive net sales and revenue
Total assets
Stockholders’ equity
Ratios
Retention rate1
Profit margin2
Asset turnover3
Financial leverage4
Averages
Retention rate
Profit margin
Asset turnover
Financial leverage
Growth rate of FCFE (g)5

Based on: 10-K (filing date: 2019-02-06), 10-K (filing date: 2018-02-06), 10-K (filing date: 2017-02-07), 10-K (filing date: 2016-02-03), 10-K (filing date: 2015-02-04).

2018 Calculations

1 Retention rate = (Net income (loss) attributable to stockholders – Cash dividends paid on common stock) ÷ Net income (loss) attributable to stockholders
= () ÷ =

2 Profit margin = 100 × Net income (loss) attributable to stockholders ÷ Automotive net sales and revenue
= 100 × ÷ =

3 Asset turnover = Automotive net sales and revenue ÷ Total assets
= ÷ =

4 Financial leverage = Total assets ÷ Stockholders’ equity
= ÷ =

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= × × × =

#### FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × ( × ) ÷ ( + ) =

where:
Equity market value0 = current market value of General Motors Co.’s common stock (USD \$ in millions)
FCFE0 = last year General Motors Co.’s free cash flow to equity (USD \$ in millions)
r = required rate of return on General Motors Co.’s common stock

#### FCFE growth rate (g) forecast

General Motors Co., H-model

Year Value gt
1 g1
2 g2
3 g3
4 g4
5 and thereafter g5

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= + () × (2 – 1) ÷ (5 – 1) =

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= + () × (3 – 1) ÷ (5 – 1) =

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= + () × (4 – 1) ÷ (5 – 1) =